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QuickBooks 2005: The Missing Manual by Bonnie Biafore

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Creating Items

The best time to create items is after you've created your accounts, but before you start billing customers. Each item links to an account in your Chart of Accounts, so creating items goes quicker if you don't have to stop to create an account as well. Similarly, you can create items while you're in the midst of creating an invoice, but you'll find creating items goes much faster when you create one item after the other. The amount of time it takes to create items depends on how many items you need. If you sell only a few services, a few minutes should be sufficient. On the other hand, construction companies that need thousands of items often forego hours of data entry by importing items from third-party programs (page 515).

Each type of item has its own assortment of fields, but the overall procedure for creating items is the same for every type. With the following procedure under your belt, you'll find that you can create many of your items without further instruction. If you do need help with fields for a specific type of item, read the sections that follow to learn what each field does.

Within each type of item, QuickBooks lists items in alphabetical order. You can change the sort order of the Item List by clicking a column heading. If you click it again, QuickBooks toggles the list order between ascending and descending order. To return the list to sort by item type, click the diamond to the left of the column headings.

Figure 4-5. Within each type of item, QuickBooks lists items in alphabetical order. You can change the sort order of the Item List by clicking a column heading. If you click it again, QuickBooks toggles the list order between ascending and descending order. To return the list to sort by item type, click the diamond to the left of the column headings.

  1. Before you can create items, you have to open the Item List window. Choose ListsItem List or, in the icon bar, click Item.

    When you first display the item list, QuickBooks sorts entries by item type. The sort order for the item types isn't alphabetical but in the order that item types appear in the Type drop-down list. You can change the sort order of the list as shown in Figure Figure 4-5.

  2. Open the New Item dialog box by pressing Ctrl+N. Alternatively, on the menu bar at the bottom of the window, click Item, and then choose New.

    QuickBooks opens the New Item dialog box and highlights the Service item type in the Type drop-down list.

  3. If you want to create a Service item, just press Tab to proceed to naming the item. If you want to create any other type of item, choose the type of item in the Type drop-down list.

    Note

    The Inventory Part type won't appear in the list if you haven't turned on inventory tracking as described on page 145. The Sales Tax Item and Sales Tax Group items won't appear if you haven't turned on the sales tax feature (see page 157).

  4. In the Item Name/Number box, type a unique identifier for the item.

    For example, if you opt for long and meaningful names, you might type "Install tack strips, carpet, clean, and haul waste." For short names, you might type "Inst Carpt."

  5. To make this item a subitem of another item, as shown in Figure 4-5, turn on the "Subitem of " checkbox.

    You can create the parent item in the midst of creating a subitem, but creating the parent first puts much less strain on your brain. When the parent item already exists, simply choose it from the "Subitem of " drop-down list. To create the parent while creating the subitem, choose <Add New> on the "Subitem of " drop-down list and jump to step 3 to begin the parent creation process. Subitems and parents must be the same type.

    Note

    You can't create subitems for Subtotal, Group, or Payment items.

    You have to assign an account to every item, whether it's a parent or not. However, you need Rate or Price values only if you plan to use items on invoices or other sales forms.

  6. If you turned on the "Subitem of " checkbox, in the drop-down list, choose the item that you want to act as the parent.

  7. Complete the other fields as described in the sections that follow (Service Fields, Inventory Part Fields, and so on) for the type of item you're creating.

    Tip

    When you create an item, you can enter information that QuickBooks will later use to fill in fields on sales forms. For example, you can type in the sales price, and QuickBooks uses that sales price on an invoice when you sell some units. If the sales price changes each time, simply leave the item's Sales Price field at zero. In this case, QuickBooks doesn't fill in the price, so you can type the value each time you sell the item. Even if you set up a value for an item, you can overwrite it whenever you use the item on a sales form.

  8. When you have many items to create, simply click Next to save the current item and begin another. If you want to save the item you just created and close the New Item dialog box, click OK.

    If you've made mistakes in almost every field or need more information before you can complete an item, click Cancel to throw away the current item and close the New Item dialog box.

Service Fields

Suppose you offer a telephone answering service. You earn income when your customers pay you for the service. You pay salaries to the people who answer the phones, regardless of whether you have two service contracts or twenty. For this business, you earn income from selling your service, but your costs don't link to the income from specific customers or jobs.

Services that you farm out to a subcontractor work differently. For example, if you offer a 900 number for gardening advice, you might have a group of freelancers who field the calls and whom you pay only for their time on the phone. You still earn income for the service you sell, but you also have to pay the subcontractors to do the work. The subcontractors' cost relates to the income for that service. QuickBooks displays different fields depending on whether a service has costs associated with income.

Here's how the Service fields work:

  • "This service is performed by a subcontractor, owner, or partner" checkbox. As shown in Figure 4-6, this checkbox is the key to displaying the fields you need when you purchase services from someone else.

  • Description on Purchase Transactions. Type the description that you want to appear on the purchase orders you issue to subcontractors.

  • Cost. Enter what you pay for the service, which can be an hourly rate or a flat fee. For example, if a partner performs the service and receives $100 for each hour of work, type 100 in this field. If the cost varies, type 0 in the Cost field. You can then enter the actual cost when you create a purchase order.

  • Expense Account. Choose the account to which you want to post what you pay for the service. If a subcontractor does the work, choose an expense account for subcontractor or outside consultants' fees. If a partner or owner performs the work, choose an expense account for job-related costs.

    Note

    QuickBooks multiplies the cost and sales prices by the quantities you add to sales forms. Be sure to define the cost and sales price in the same units, so QuickBooks calculates your income and expenses correctly.

    Top: If a Items Service items ItemsServicesservice doesn't have costs directly associated with it, you define only the rate, the tax code, and the income account for the service.Bottom: If subcontractors, owners, or partners perform the service and get paid for their work, a Service item must contain information for both the sales and purchase transactions. QuickBooks uses the information in the Purchase Information section of the Items creatingCreate Item or Edit Item dialog boxes to fill out purchase orders or track owners' earned compensation. The information in the Sales Information section goes into fields on invoices.

    Figure 4-6. Top: If a service doesn't have costs directly associated with it, you define only the rate, the tax code, and the income account for the service. Bottom: If subcontractors, owners, or partners perform the service and get paid for their work, a Service item must contain information for both the sales and purchase transactions. QuickBooks uses the information in the Purchase Information section of the Create Item or Edit Item dialog boxes to fill out purchase orders or track owners' earned compensation. The information in the Sales Information section goes into fields on invoices.

  • Preferred Vendor. If you choose a vendor in this drop-down list, QuickBooks selects the preferred vendor for a purchase order when you add this Service item. This is helpful only if you almost always use the same vendor for this service and you add the service item to a purchase order before you choose the vendor.

  • Description on Sales Transactions. If you create a Service item without associated costs, type a detailed description for the service in this box. This description appears on invoices and sales forms, so use terms your customers can understand.

    For items with associated costs, QuickBooks copies the text from the Description on Purchase Transactions box to the Description on Sales Transactions box. However, if your vendors use technical jargon that your customers wouldn't recognize, you can change the text in the Description on Sales Transactions box to something more meaningful.

  • Sales Price. Type how much you charge your customers for the service. You can enter a flat fee or a charge per unit of time. For example, you might charge $9.95 for unlimited gardening advice per call, but Intuit telephone support charges by the minute.

    When you add the item to an invoice, QuickBooks multiplies the quantity by the sales price to calculate the total charge. If the cost varies, type 0 in the Sales Price field. You can then enter the price when you create an invoice or other sales form.

Tip

For services that carry a flat fee, use a quantity of 1 on your invoices.

  • Tax Code. Most service items are non-taxable, so you'll choose Non more often than not.

Note

For all types of items, the Tax Code field appears only if you've turned on the sales tax feature, as described on page 157.

  • Income Account. Choose the income account to which you want to post the income for this service. For example, when you create a Service item for snowplowing, choose the corresponding snowplowing income account.

Inventory Part Fields

As described in the "Following the Inventory Money Trail" box on page 80, dollars move between accounts as you buy and sell inventory. Here's how you use the fields for an Inventory Part item (shown in Figure 4-7) to define your company's inventory money trail and, at the same time, keep track of how much inventory you have:

  • Description on Purchase Transactions. This is the description that you want to appear on the purchase orders you issue to purchase inventory items. Describe the product in terms that the vendor understands, because you can use a different description for the invoices that customers see.

  • Cost. Enter what you pay for one unit of the product. QuickBooks counts on your selling products in the same units that you buy them. For example, if you purchase four cases of merlot but sell wine by the bottle, enter the price you pay per bottle in this field.

  • COGS Account. Choose the account to which you want to post the costs when you sell the product. (COGS stands for cost of goods sold, which is an account for tracking the underlying costs of the things you sell in order to calculate your gross profit.)

Note

If you don't have a cost of goods sold account in your Chart of Accounts, QuickBooks creates a Cost of Goods Sold account for you as soon as you type the name for your first inventory item in the New Item dialog box.

  • Preferred Vendor. If you choose a vendor in this drop-down list, QuickBooks selects the preferred vendor when you add this Inventory Part item to a purchase order.

    When you open the Edit ItemscreatingItem dialog box to inspect or alter an Inventory Part item, QuickBooks calculates several inventory statistics for that item. These statistics appear at the bottom of the dialog box. On Hand represents the quantity of the item available in inventory. Avg. Cost is the average cost you've paid for all the units you've purchased; QuickBooks uses the average cost when deducting the value of units sold from the inventory asset account. On P.O. is the number of units you have on purchase orders but have not yet received.

    Figure 4-7. When you open the Edit Item dialog box to inspect or alter an Inventory Part item, QuickBooks calculates several inventory statistics for that item. These statistics appear at the bottom of the dialog box. On Hand represents the quantity of the item available in inventory. Avg. Cost is the average cost you've paid for all the units you've purchased; QuickBooks uses the average cost when deducting the value of units sold from the inventory asset account. On P.O. is the number of units you have on purchase orders but have not yet received.

  • Description on Sales Transactions. When you type a description in the Description on Purchase Transactions box, QuickBooks copies that description into the Description on Sales Transactions box. If your customers wouldn't recognize the description you use to buy the product, type a more customer-friendly description in this field.

  • Sales Price. In this field, type how much you charge for the product. Make sure that the Cost field uses the same units. For example, if you sell a bottle of merlot for $15, type 15 in this field and type the cost per bottle in the Cost field.

  • Tax Code. When you add an item to an invoice, QuickBooks checks this code to see whether the item is taxable. (QuickBooks comes with two tax codes set up: "Non" for nontaxable items and "Tax" for taxable items.) Most products are taxable, although groceries are the most familiar exception.

  • Income Account. Choose the income account from your Chart of Accounts to which you want to post the money you receive when you sell one of these products.

  • Asset Account. Choose the asset account to which you want to post the value of the inventory you buy. Suppose you buy 100 bottles of merlot, which are worth the $8-a-bottle you paid. QuickBooks posts $800 into your inventory asset account. When you sell a bottle, QuickBooks deducts $8 from the inventory asset account and adds that $8 to the cost of goods sold account.

  • Reorder Point. Type the quantity on hand that would prompt you to order more.

Tip

If you can receive products quickly, use a lower reorder point to reduce the money tied up in inventory and prevent write-offs due to obsolete inventory. Just-in-time delivery is popular for exactly these reasons. When products take some time to arrive, set the reorder point higher. Figuring out the right reorder point for each product requires time and experience. Start with your best guess and edit this field as business conditions change.

Non-inventory Part Fields

Non-inventory Part items play two important roles in QuickBooks. First, you'll need Non-inventory Part items if you use purchase orders to buy supplies. The second role involves reselling products that you don't keep in inventory. For example, suppose you're a general contractor and you purchase materials for a job. When you use Non-inventory Part items, QuickBooks posts the cost of the products to an expense account and the income from selling the products to an income account. You don't have to bother with the inventory asset account, because you transfer ownership of these products to the customer almost immediately. See page 195 to learn how to charge your customer for these reimbursable expenses.

The good news about Non-inventory Part items is that they use all the same fields as Service items. The bad news is the few subtle differences you need to know. Take the following disparities into account when you create Non-inventory Part items.

  • "This item is purchased for and sold to a specific customer:job" checkbox. The checkbox goes by a different name, but its behavior is the same. Turn on this checkbox when you want to use different values on purchase and sales transactions.

    When you turn this checkbox on, QuickBooks displays an Income Account field and an Expense Account field, like the fields you see in the bottom figure of Figure 4-6. For Non-inventory Part items, the accounts that you choose are income and expense accounts specifically for products. Read the next bullet to find out what happens when you turn this checkbox off.

  • Account. If you don't resell this product and you thus turn off the "This item is purchased for and sold to a specific customer:job" checkbox, you see only one Account field. If you create this item to buy company supplies using purchase orders, QuickBooks considers the account in this field as an expense account for the purchase.

  • Tax Code. The Tax Code field works exactly the same way as the Tax Code field for a Service item. Choose Non if the products are non-taxable, such as groceries. Choose Tax if the products are taxable.

Other Charge Fields

For Other Charge items, the checkbox for hiding or showing cost fields comes with the label "This is a reimbursable charge." For example, turn on this checkbox when you want to set the Cost field to the actual Federal Express charge and the Sales Price to the shipping and handling fees you charge your customers. You'll see the same sets of fields for purchases and sales as you do for Service and Non-inventory Part items.

Alternatively, you can create charges that don't link directly to expenses by turning off the "This is a reimbursable charge" checkbox. You can create a percentage, which is useful for calculating shipping based on the value of the products being shipped, as demonstrated in Figure 4-8.

Top: To create a percentage-based charge, type a number followed by "%" in the "Amount or %" field.Bottom: When you add a percentage-based Other Charge item to an invoice, QuickBooks applies the percentage to the previous line in the invoice. If you want to apply the Other Charge percentage to several Invoicesitemsitems, add a Subtotal item to the invoice before the Other Charge item.

Figure 4-8. Top: To create a percentage-based charge, type a number followed by "%" in the "Amount or %" field. Bottom: When you add a percentage-based Other Charge item to an invoice, QuickBooks applies the percentage to the previous line in the invoice. If you want to apply the Other Charge percentage to several items, add a Subtotal item to the invoice before the Other Charge item.

You can also define a dollar value charge for a country club's one-time initiation fee. When you turn off the "This is a reimbursable charge" checkbox, the Cost and Sales Price fields disappear, and the "Amount or %" field takes their place. If you want to create a dollar charge, type a whole or decimal number in this field.

Subtotal

You need only one Subtotal item, because every Subtotal item does the same thing—it totals all the amounts for the preceding lines up to the last subtotal. Because you can't change a Subtotal item's behavior in any way, a Subtotal item has just two fields: Item Name/Number and Description. You can type any name and description you wish in these fields, but in practically every case, Subtotal says it all.

Group

A Group item can add several items to an invoice at once. For example, you can create a Group item, such as Landscaping, that contains the individual Service items for every phase of a construction project. When you add this Landscaping Group item to an invoice, QuickBooks adds the Service items for phases, such as Excavation, Grading, Planting, and Cleanup.

You can also use a Group item to hide the underlying items, which is mainly useful when you create fixed-price invoices (page 81) and you don't want the customer to know how much profit you're making. Here's how you set up a Group item to do these things:

When you add a Group item to an invoice, QuickBooks fills in the Description cells for each individual item with the contents of its Description field. The background in the Description column is a different color to indicate that you can't edit these cells.

Figure 4-9. When you add a Group item to an invoice, QuickBooks fills in the Description cells for each individual item with the contents of its Description field. The background in the Description column is a different color to indicate that you can't edit these cells.

  • Print items in group. To show all the underlying items on your invoice, turn on the "Print items in group" checkbox. Figure 4-2 on page 81 shows examples of both showing and hiding the items within a group.

  • Item. To add an item to a group, click a blank cell in the Item column and choose the item you want, as shown in Figure 4-9.

  • Description. Type a description of the group that gives a sense of the individual item within it, such as Landscaping Project.

  • Qty. When you create a Group item, you can include different quantities of items, just like a box of note cards usually includes a few more envelopes than cards. For each item, type how many you typically sell as a group. If the quantity of each item varies, type 0 in the Qty. cells. You can then specify the quantities on your invoices after you've added a Group item.

Discount

The Discount item deducts either a dollar amount or a percentage for discounts you apply at the time of a sale, such as volume discounts, damaged goods discounts, or the discount you apply because your customer has incriminating pictures of you.

Note

QuickBooks applies early payment discounts in the Receive Payments dialog box, so you don't create Discount items for those.

The fields for a Discount item are similar to those of an Other Charge item with a few small differences—described here:

  • Amount or %. This field is always visible for a Discount item. To deduct a dollar amount, type a positive number (whole or decimal) in this field. To deduct a percentage, type a whole or decimal number followed by "%," for instance, 5.5%.

  • Account. Choose the account to which you want to post the discounts you apply. You can post discounts to either income accounts or expense accounts.

    When you post discounts to an income account, they appear as negative income, so your gross profit reflects what you actually earned after deducting discounts. Posting discounts to expense accounts, on the other hand, makes your income look better than it actually is. The discounts increase the amounts in your expense accounts, so your net profit is the same no matter which approach you use.

  • Tax Code. When you choose a taxable code in the Tax Code field, QuickBooks applies the discount before it calculates sales tax. For instance, if a customer buys products on sale, she pays sales tax on the sale price, not the original price.

    When you choose a nontaxable code in the Tax Code field, QuickBooks applies the discount after it calculates sales tax. You might have a reason to do this, but understand that you'll collect less sales tax from your customers than you must send to the tax agencies.

Payment

Beyond the Type, Item Name/Number, and Descriptions fields, the Payment item boasts fields unlike those for other items. These fields, shown in Figure 4-10, should look familiar if you've already set up customers in QuickBooks.

The fields for a Payment item designate the method of payment that a customer uses and whether you deposit the funds to a specific bank account or group them with other undeposited funds. For example, if your customers send checks, you save up the checks you receive each week and make one trip to deposit them in your bank. On the other hand, credit card payments transfer directly into a bank account.

Figure 4-10. The fields for a Payment item designate the method of payment that a customer uses and whether you deposit the funds to a specific bank account or group them with other undeposited funds. For example, if your customers send checks, you save up the checks you receive each week and make one trip to deposit them in your bank. On the other hand, credit card payments transfer directly into a bank account.

  • Payment Method. Choose the payment method, such as cash, check, or brand of credit card. In the Make Deposits dialog box, you can filter pending deposits by the type of payment method.

  • Group with other undeposited funds. Choose this option if you want to add the payment to other payments you received. When you add the Payment item to a sales form, QuickBooks adds the payment to the list of undeposited funds. To actually complete the deposit of all your payments, choose BankingMake Deposits.

  • Deposit To. If payments flow into an account without any action on your part, such as credit card or electronic payments, choose this option and then choose the bank account in the drop-down list.

Sales Tax Item

Like the IRS, each tax agency wants to receive the taxes it's due. To track the taxes you owe to each agency, create a Sales Tax Item for each agency. For example, if you sell products through direct mail, you'll need a Sales Tax Item for each state with sales tax that you ship to. Here's the pertinent information on Sales Tax Item fields:

  • Tax Name. Instead of an Item Name/Number label, the label for the name field is Tax Name. However, the name you enter appears in the Name column of the Item List, just like other types of items.

  • Tax Rate. When you create a Sales Tax Item, QuickBooks goes ahead and fills in the Tax Rate field with 0.0%. You can edit QuickBooks' entry, but the easiest way to enter a rate is to double-click the field to select the entire entry, and then type the whole or decimal number for the percentage. For example, if you type 2.2, QuickBooks changes the field to 2.2%.

  • Tax Agency. This drop-down list displays the vendors you've created in your Vendor List. To make tax agencies easier to find, consider creating a top-level vendor (see page 104) for tax agencies and then creating subitems for each tax agency to which you pay taxes.

Sales Tax Group

A Sales Tax Group item calculates the total sales tax for multiple Sales Tax Items—perfect when you sell goods in an area rich with state, city, and local sales taxes. The customer sees only the total sales tax, but QuickBooks tracks how much you owe to each agency. This item works in the same way as the Group item, except that you add Sales Tax Items to cells instead of items such as Service, Inventory, and Other Charges.

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